This FMCG Stock Registered 20% Y-O-Y Growth On e-Commerce, Sharekhan Recommends Buy

Updated: Sunday, May 15, 2022, 16:27 [IST]

Emami Ltd is one of the leading FMCG companies that manufactures and markets personal care and healthcare products. With a market cap of Rs 18,850 crore and over 300 diverse products including brands such as Navratna, Boroplus, Fair & Handsome, and Zandu. Emami has a wide distribution reach in over 4.5 million retail outlets through ~3,250 distributors. The company has also a strong international presence in over 60 countries in GCC, Europe, Africa, CIS countries, and SAARC. On Friday, 13 May 2022, the stocks of the company closed at Rs 427.30 after falling 5.11%. Sharekhan, the brokerage firm recommended buy for a target price of Rs 550 per share.

Q4FY22 Results

The brokerage has said, "In Q4FY2022, Emami's revenue growth moderated to 5% y-o-y to Rs. 770.4 crore, largely due to slowing consumer demand and a high base of Q4FY2021. Domestic business revenues grew by 4% y-o-y (22% on 2-year CAGR). International business grew by 8% y-o-y. Domestic sales volumes stood flat on high base of 36% volume growth. Moderate raw material inflation in Q4 led to gross margins decline of just 30 bps to 62.4%. However, higher advertising spends and other expenses resulted in 100 bps decline in OPM to 21.3%. Operating profit stood flat, while lower other income led to a ~8% fall in adjusted PAT to Rs. 122.2 crore. MAT credit entitlement of Rs. 288 crore for current and previous year resulted in reported PAT of Rs. 354 crore. For FY2022, revenues grew by 10.8%y-o-y to Rs. 3192.0 crore and adjusted PAT grew by 13.0%y-o-y to Rs. 760.8 crore."

Key positives and negatives

Commenting on the key positives, the brokerage has said, "Strong traction on channels such as modern trade and e-commerce, which registered of 9% and 20% y-o-y growth, respectively. Excluding CIS region, International business registered a strong growth of 17% led by double-digit growth in regions such as Bangladesh and UAE. The company added 8000 rural towns to 40,000 rural towns in FY2022." It added key negatives, "Kesh King oil and Boro Plus range of products registered decline in revenues due to high base. Despite flat gross margins, Consolidated OPM decreased by 100 bps y-o-y due to higher ad-spends."

Buy the stock for a target price of Rs 550 per share

The brokerage in the report has said, "Emami has a strong brand portfolio and its sustained focus on new product launches, distribution expansion, and scale-up on emerging channels will help to improve its growth prospects in the medium term. Further, we like the company's focus in rewarding shareholders with better dividend payout because of improved cash flows. Acquisition of Dermicool provides a lot of synergistic benefits and scope for margin improvement in the long run. Promoters pledging currently stands at 34% and the company is focusing reducing substantially in the coming years. The stock has corrected by 14% in the past three months and is currently trading at trading 23.8x and 19.4x its FY2023E and FY2024E earnings, respectively. We maintain Buy with an unchanged PT of Rs. 550."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.